Citi shuts once-envied muni business

investmentnews.com:

Citigroup Inc. will shutter its municipal bond business, one of the most dramatic moves yet by Chief Executive Jane Fraser as she seeks to squeeze better returns out of the Wall Street giant.

The bank decided the business, which has tumbled in the rankings for underwriting state and local debt, is “no longer viable given our commitment to increase the firm’s overall returns,” according to a memo to staff seen by Bloomberg News. Citigroup intends to complete the wind-down by the end of the first quarter, which will mean most of the company’s municipal sales, trading and banking staffers will be departing the bank in the coming months.

“We have made the difficult decision to wind down our municipal underwriting and market-making activities,” the memo said.

The move affects about 100 employees, according to a person familiar with the matter.

Reports that Citigroup was deciding whether to exit a business that it once dominated shocked the municipal market earlier this year. For decades, the bank was a powerhouse in the $4 trillion market for U.S. state and local debt, helping on landmark projects including the rebuilding of the World Trade Center site and the installation of 65,000 streetlights around the city of Detroit.

But the unit’s fortunes have turned in recent years, and the division didn’t fit with Fraser’s broader goal of making Citigroup the premier bank for large, multinational corporations. Texas politicians added another blow when they froze the bank out of a number of deals there because of its firearms policies. Texas is the No. 1 market for muni sales this year, so the moves crimped the unit’s revenue and overall profitability.

The decision comes after months of intense deliberations inside Citigroup,